MCD Sep 2024 290.000 call

Fast food discounts are a 'necessary evil' right now: Analyst

The fast food sector has seen an uptick in discounted offerings from companies like McDonald's (MCD) and Burger King as pressure to bring in more consumers intensifies. What does this mean for the broader restaurant sector? BTIG Managing Director and Restaurant Analyst Peter Saleh and TD Cowen Managing Director Andrew Charles join Market Domination to give insight into the discounts offered at fast food chains and what investors need to keep in mind moving forward. Saleh characterizes the industry as healthy overall but highlights several key risks: "I think these discounts, as steep as they are, are going to likely hurt same-store sales in the medium term, and I think they could hurt margins in our opinion. These are investments in value perceptions given all the media backlash against all the price increases that have been happening. So we think this is something necessary, a necessary evil for these companies to be doing at this point in time, but it's going to take some time to change the perception and the narrative in the media that these companies are more about value than they are about price hikes." Charles notes he is "cautiously optimistic" about the fast food giants' strategy: "I would say the last time we saw this, to your point, was in 2018, not a banner year for McDonald's. You had same-store sales of about 2.5%. It's a little bit above the consensus right now for 2% for the year and during that time, traffic was negative by about 2.2%. So the analog here is not great." For more expert insight and the latest market action, click here to watch this full episode of Market Domination. This post was written by Nicholas Jacobino